Shutdown hurts US global economic interests

Erik Brattberg, visiting fellow at Johns Hopkins University

Tuesday, 8 Oct 2013 | 12:09 PM ETCNBC.com

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A week into the U.S. government shutdown, and with no clear way out in sight, the real effect of the shutdown is now starting to be felt. Besides the obvious domestic effects, the shutdown — along with the impending crisis over the debt ceiling due in mid-October — could also cause serious collateral damage to America's global economic standing.

In fact, it already has.

The cancellation of President Obama's planned trip to Asia is one example. By skipping the annual Asia Pacific Economic Cooperation (APEC) summit, Obama has inadvertently sent a message to regional players that Washington is not really serious about strengthening its presence there — a message that Beijing has been quick to capitalize on.

With growing protectionist tendencies across the Asia-Pacific, and with China increasingly vying for economic influence across the region, American support for the Trans-Pacific Partnership (TPP) is crucial.

By not attending the meeting, Obama forfeits an opportunity to make a strong personal push for the regional trade deal and to strengthen U.S. business ties with three important emerging economies—Indonesia, Malaysia and the Philippines.

But U.S. economic interests in Asia are not the only ones affected by the shutdown. Negotiations with the European Union over the Trans-Atlantic Trade and Investment Partnership (TTIP) are also taking a hard hit. This week, U.S. trade officials were supposed to meet their European counterparts in Brussels for the second round of negotiations. Now cancelled, this meeting will have to be pushed into the future.

Of course, the TTIP negotiations with Europe will soon resume. But, given what is at stake — a trade deal of epic proportions with potential to drive growth on both sides of the Atlantic as well as the rest of the world — the cancelled meeting still marks a blow to the White House. Europeans are currently looking at American politics with a combination of intrigue and disgust. The title of recent story in the French daily, Le Monde, on the US government shutdown, "Jefferson, Wake Up, They've Gone Crazy!," says it all.

The impact of the shutdown may also be felt during the upcoming IMF and World Bank meetings in Washington. Here, the U.S. government's ability to muster the resources necessary to effectively advocate American interests in countless meetings and bilateral with foreign colleagues is now called into question. (Case in point: Some 90 percent of the Treasury Department's employees are currently on furlough).

Of course, the White House should and must devote its full attention to quickly resolving the current stalemate on Capitol Hill. The point, however, is that it should never have had to in the first place. The current brinkmanship in Washington is threatening vital U.S. economic interests by both diverting Washington's attention from other, more crucial matters and by reducing partners' confidence in American leadership.

The longer the shutdown remains unresolved, the greater is also the risk for a separate crisis over the debt ceiling, due on Oct. 17. As IMF chief Christine Lagarde made clear while speaking in Washington recently, a failure to raise the debt ceiling would be even worse than the shutdown.

So, regardless of their ideological and political differences, politicians in Washington must quickly come together to put an end to the embarrassing shutdown. Although much damage has already been done, the long-term damage may still be contained, and confidence in the U.S. political system gradually restored, if they act fast. If not, the negative consequences for the US' ability to execute global economic leadership will be felt both long and hard — not only in America but also throughout the world.

—By Erik Brattberg

Erik Brattberg is a visiting fellow at the Center for Transatlantic Relations at Johns Hopkins University School of Advanced International Studies (SAIS) in Washington.